Exemption amounts and itemized deductions are two types of reductions used to calculate taxable income. Which of the following are characteristics of these types of deductions? I. Taxpayers deduct the larger of itemized deductions or the standard deduction. II. Exemption amounts are dependent on amounts of expenditures for dependents. Deductions for adjusted gross income are limited to those incurred in a trade or III. business, incurred in the earning of income, and certain specifically allowed personal expenses of individuals.

Question

Quizplus · Accepted Answer

Statement I is correct because taxpayers can choose between itemized deductions and the standard deduction, opting for whichever is larger. Statement III is correct as deductions for adjusted gross income include those related to business and income-earning activities. Statement II is incorrect because exemption amounts are not directly dependent on expenditures for dependents.

Exemption Amounts and Itemized Deductions Are Two Types of Reductions